Ed Miliband's proposals to limit the size of Britain's biggest banks and force them to sell off branches to smaller rivals would not improve the banking sector's competitiveness, Bank of England governor Mark Carney has warned.
The Labour leader is expected to propose a cap on UK banks market share on Friday, but officials have so far indicated that a 25% market share limit was inaccurate. Labour will reportedly refer the high street banks to competition authorities if they win re-election, with plans to potentially see the banks broken up.
However, Carney told MPs on the Treasury select committee that the UK already had a "hard touch" regime of financial regulation, adding: "just breaking up an institution doesn't necessarily create or enable a more intensive competitive structure."
The Bank of England governor also said he did not back a "crude bonus cap" on pay in banks, in remarks that can be seen as rejecting Labour's call for senior bankers at RBS to have their bonuses limited to only 100% of their pay, rather than twice that.
Carney went on to criticise the EU bank bonus cap, warning it would undermine some of the changes already imposed to claw back bonuses from bankers.
He said: "It takes back some of the advantages of the approach that we have had because it will incentivise more cash compensation today - exactly the type of problem we had before - that we can't claw back.
"We would rather see more deferral, more equity [share-based payout] and this ability to take it back when those risks come to light."
Carney's comments as politicians fought over whether the government should block any bid from RBS to pay its bankers twice their pay in bonuses. However Labour's parliamentary motion urging the government to do so was defeated as 304 MPs voted against it, with just 241 voting in support.
Labour's shadow foreign secretary Danny Alexander told the BBC's World At One that David Cameron was "treating us like mugs" by promising to limit cash bonuses to £2,000, while Labour's shadow treasury spokesman Chris Leslie derided the Prime Minister's pledge as "sophistry" and "warm words".
Leslie added: “David Cameron has refused to rule out approving bonuses of up to 200 per cent at RBS. It looks like he and George Osborne would approve such a request at a time when ordinary families face a cost-of-living crisis and bank lending to businesses is falling.
“A cap on total remuneration is a complete red herring because RBS is cutting another 2,000 jobs in its investment bank and many executives were paid bonuses worth more than 100 per cent of their salary last year."
Speaking at Prime Minister's Questions, Cameron said: "I can confirm today that just as we have had limits on cash bonuses of £2,000 at RBS this year and last year, we will do the same next year as well."
He added: "If there are any proposals to increase the overall pay, that is pay and bonus bill at RBS, at the investment bank, any proposals for that, we will veto it."
Under new European laws, any banker earning over €1m would fall under the cap, while RBS had 93 bankers who were paid over £1 million in 2012, compared with 428 at Barclays and 204 at HSBC.
Lib Dem MEP Sharon Bowles, chair of the European Parliament's committee on economic and monetary affairs, told HuffPostUK: “The intention, indeed expectation, of the Parliament's legislators was that bailed out banks would not be allowed to give bumper bonuses. The logic was that first priority should go to paying back taxpayers.”
“I understand that the argument will be raised about the importance of performance for the benefit of taxpayers, but the fact is the situation IS different.”